Is the American Empire at an End? (Part I)

In the late 1980s most political pundits were writing off the United States as the preeminent economic power in the world.

Japan, they insisted, had supplanted the U.S. as #1 and Americans watched as Japanese, rife with cash, bought up trophy properties from New York’s Rockefeller Plaza to the fabled Pebble Beach Golf Course in Carmel, California.

I was in the middle of his hysteria, living in Tokyo as theChicago Tribune’s Chief Asia Correspondent. I have to admit as the plethora of books and news stories about the new Japanese Super State flooded the planet, it was difficult not to buy into the credence of these arguments.

America, the experts droned on, had lost its competitive edge. Its people were soft, lazy and inept. The American Empire was in decline–another Great Britain, losing its status and stature around the world.

Then along came 1990-91 and the over-inflated Japanese economic bubble, engendered by a grossly over-valued real estate market, burst. Within a few years the U.S. regained its competitive edge and its economy embarked on a decade of unprecedented growth. Meanwhile, the Japanese economy has yet to recover.

Of course, that is not the end of the story. Today the U.S. is once again teetering at the brink of economic catastrophe and this time China is perceived as the nation poised to supplant America as the world’s most powerful economy.

Now anybody who has been to China has to be impressed with the progress that nation has made. New cities, new buildings, new roads, new industries–of these things add up to a country on the rise. No argument there.

But travel out of the cities and you see a different China. This is a nation in which withsome 150 million people are living below the United Nations poverty line of $1 (that’s “one” US dollar) a day and nearly 500 million Chinese live on less than $2 a day, according to the China Development Research Foundation.

The Foundation also reports that nearly 85% of China’s poor live in rural areas, with about 66% concentrated in the country’s west and they share less than 12% of the country’s wealth. Only about 55 million Chinese (out of a population of some 1.2 billion) are considered middle-class.

Meanwhile, the U.S. trade deficit with China has surged over the past two decades, as U.S. imports from China have grown much faster than U.S. exports to China. That deficit rose from $10 billion in 1990 to $266 billion in 2008, fell to $227 billion in 2009, and then rose to $273 billion in 2010. For 2011 the U.S. trade deficit with China is projected to hit more than $300 billion.

According to the Congressional Research Service, during the past decade, China has been the fastest-growing market for U.S. exports. U.S. imports of low-cost goods from China greatly benefit U.S. consumers by increasing their purchasing power. U.S. firms that use China as the final point of assembly for their products, or use Chinese-made inputs for production in the United States, are able to lower costs and become more globally competitive. China’s purchases of U.S. Treasury securities (which stood at nearly $1.2 trillion at the end of 2010) help keep U.S. interest rates relatively low.

On the other hand, many analysts argue that growing economic ties with China have exposed U.S. manufacturing firms to greater, and what is often perceived to be “unfair” competition from low-cost Chinese firms. They argue that this has induced many U.S. production facilities to relocate to China, resulting in the loss of thousands of U.S. manufacturing jobs. Some policymakers have also raised concerns that China’s large holdings of U.S. government debt may give it leverage over the United States.

These are all valid points, and they tend to mirror the same concerns that existed between the U.S. and Japan in the 1980s–but only up to a point.

Since the end of World War II, Japan has been an American ally–a bulwark for the projection of U.S. military might in Asia. China, on the other hand, has opposed the American military presence in the region and especially criticized U.S. support of Taiwan, which it considers a rogue province.

Unlike China, Japan is a nation built on post-war capitalism–albeit a more managed model than the type practiced in the U.S. The government in China is still a hard core Communist regime that would like nothing more than to see the free market capitalist democracy in America fail.

Thus, the relationship between China and the U.S., while mostly friendly since diplomatic ties were reestablished in the early 1970s, often has been strained.

Never was that more evident than after 1989 and the Tiananmen Square massacre–an event that I covered for the Tribune. After the Chinese government slaughtered some 2,000 to 3,000 students and pro-democracy protesters in the heart of Beijing in June of that year, Washington finally began to take the issue of human rights violations in China seriously.

It continues to do so, though the Chinese government sees any criticism of how it handles anti-government and anti-communist protesters as an internal issue that the U.S. has no business interfering with.

Give China points for creating a robust, semi-capitalist economy that has been built on enticing technology transfer from places like Europe, the U.S., Japan and South Korea. Give it points for refusing to buckle under to demands that it revalue its currency so its products are no longer dumped on international markets.

And finally, give it points for looking ahead while political leaders in the U.S. seem mired in the past, content to concede space exploration to lesser nations and allow energy independence to languish while greedy Middle Eastern sheiks hold us hostage.

While we squabble about the direction of capitalism, the redistribution of wealth and a plethora of questionable social reengineering schemes, our competitors (i.e. China) are innovating, moving forward and prospering.